[2025] UKUT 00278 (TCC)

The question of whether the information required by s. 20(5) of the Finance Act 2020 can be provided on the form AAG(s) for the scheme(s) referred to in the relevant tax returns was considered in the recent judgment of Dias J in R (Sensor Solutions) v HMRC [2024] EWHC 1119 (Admin). That was also a case where HMRC had rejected the taxpayer’s repayment claim under the DRRS on the grounds the claimant had not made reasonable disclosure. The claimant relied on the scheme information contained in the promoters’ AAG forms. While it conceded that the AAG forms did not strictly form part of its tax returns as defined in s. 20(8) of the Finance Act 2020, it argued that the AAG forms were essential to the correct interpretation of the tax returns, so should have been taken into account by HMRC as a matter of fairness (§§23–25).

That argument was rejected by Dias J. She noted that the extent and content of the duty of fairness depended on the particular legal context (§27). In the context of s. 20(5) and (8) of the Finance Act 2020, she explained that (§§28–29):

“In the present case, Parliament has expressly prescribed in sections 20(5) and (8) of the Act what is to constitute ‘reasonable disclosure’. In so doing, it has evinced a clear intention that reasonable disclosure for the purposes of the section is only to be found in one or more tax returns as there defined. The underlying rationale is presumably two-fold: (i) to reduce the burden on HMRC by restricting the ambit of the documents it must consider to those which have unarguably been presented to it and which it is likely still to retain in its records and thus avoiding it having to trawl through all of its records for material which may or may not throw light on matters; and (ii) to put the onus firmly on the taxpayer to have made reasonable disclosure in those documents without requiring HMRC to have to spend time trying to join the dots if the picture is not immediately clear.

Although [counsel for the claimant] insisted to the contrary, it seems to me that this is the clearest possible exclusion of any power (let alone an obligation) to look outside the four corners of the tax returns in order to find reasonable disclosure. To do so would be effectively to include the AAG forms in the definition of ‘tax return’ notwithstanding the Claimant’s concession that they were not so included. Section 20(5) defines what amounts to reasonable disclosure and in my judgment that is an exhaustive definition. In other words, there is no scope to go outside the four corners of the sub-section in assessing what does or does not constitute reasonable disclosure. It is not for the courts or HMRC to usurp the legislative function and override the definition of reasonable disclosure which Parliament has chosen to adopt merely because it might be ‘fair’ to do so. The duty of fairness is directed squarely at procedures and the manner in which public bodies reach their decisions, not at the substance of the law. I can see nothing in the concept of procedural fairness which mandates the wholesale alteration of the substantive law.”

Dias J went on to hold that fairness therefore did not require the HMRC officer to take the AAG forms into account, and that since the taxpayer had conceded that it had no case without the AAGs, its claim failed (§§30–32).

Mr Goodfellow sought to distinguish Sensor Solutions on the basis that in that case the claimant conceded that the AAG forms did not form part of the tax return. He did not make that concession. Mr Goodfellow’s submission was that if the relevant tax returns made reference to disclosure of tax avoidance schemes (by ticking the relevant box on the corporation tax return) and provided the reference numbers of any schemes used by the company, that effectively incorporated by reference the information provided by the promoters in the AAG forms relating to those schemes.

We do not accept that submission. In our judgment, taking account of the statutory language, the rationale for the requirements of s. 20(5), and the DOTAS notification obligations, the AAGs provided by scheme promoters cannot be regarded as incorporated into the corporation tax returns of companies using the relevant schemes, and the claimant in Sensor Solutions was therefore right to concede that point.

In that regard the first point to make is that s. 20(5) requires the “reasonable disclosure” to be made in one or more tax returns. Section 20(8), as set out above, defines a tax return as either “a return made under s. 8 of TMA 1970 and any accompanying accounts, statements or documents” (which refers to an individual’s self-assessment tax-return), or “a return made under paragraph 3 of Schedule 18 to FA 1998” (which refers to a corporation tax return).

Under s. 8(1) TMA 1970, the individual taxpayer is to make or deliver “a return containing such information as may reasonably be required in pursuance of the notice, and to … deliver with the return such accounts, statements and documents, relating to information contained in the return, as may reasonably be so required”. Under §3 of Schedule 18 to the Finance Act 1998 the company is required to deliver a return containing “such information, accounts, statements and reports – (a) relevant to the tax liability of the company, or (b) otherwise relevant to the application of the Corporation Tax Acts to the company, as may reasonably be required by the notice”.

The information provided by an AAG is not captured in the above provisions. An AAG is not filed by the taxpayer (whether an individual or a company). It is filed by a different person (the scheme promoter) and under a different statutory regime established by the Finance Act 2004, Part 7 and the secondary legislation made thereunder. As Dias J noted at §14 of Sensor Solutions, the DOTAS regime was set up:

“for the purpose of providing HMRC with information about structures which they believe are being marketed as tax avoidance schemes. Promoters of such a scheme are required to notify HMRC of the mechanics of the scheme by means of form AAG1, after which they are given a Scheme Reference Number (‘SRN’). Each scheme has a single SRN irrespective of the number of individuals or companies using it. The promoter notifies the SRN to each taxpayer using the scheme on form AAG6 and the taxpayer is then obliged to notify HMRC that it is using the scheme and to supply the relevant SRN.”

As described there, the taxpayer will receive the Scheme Reference Number (SRN), and is required to use that to notify HMRC on its tax return that it is using that scheme. The taxpayer will not, however, necessarily have the details of the scheme provided by the promoter to HMRC on the AAG form. Indeed, as Mr Goodfellow acknowledged in his submissions, it appears that Fluid Scotland’s accountants did not have a complete set of the relevant AAG forms for the schemes that it was using.

If the intention had been to include the information provided by a scheme promoter in a DOTAS notification alongside the tax returns, for the purposes of the reasonable disclosure requirement, it would have been straightforward to include that in s. 20(5). Notably, however, s. 20(5) requires the information to be provided in one or more tax returns, as defined. We agree with and adopt the reasoning of Dias J in Sensor Solutions as to the rationale for that requirement. As she explained at §29, the intention must have been to place the onus on the taxpayer to provide the information required, and to limit the compass of the documents which HMRC was required to consider for that purpose. That was a clear legislative choice, which points strongly towards the AAG information not being considered part of the return.

We also note, as an aside, that if a tax return were to be taken as incorporating by reference information in one or more AAGs which had been provided by the scheme promoters, that would sit oddly with the provisions in s. 8(2) TMA 1970 and §3(3) of Schedule 18 to the Finance Act 1998 stipulating that the return shall include a declaration by the person making the return that the return is, to the best of the person’s knowledge, correct and complete.

Mr Goodfellow sought to rely on an internal HMRC operational note, provided as an exhibit to Ms Robinson’s witness statement, entitled Loans which are no longer within loan charge because the customer made a reasonable disclosure of their loans and we had not taken steps to recover the tax due on those loans by 5 April 2019. Under the heading “Reasonable disclosure – Scheme Reference Numbers” the note provided the following guidance:

“Inclusion of a DOTAS scheme reference number in a relevant return does not automatically qualify as a reasonable disclosure.

Where a DOTAS scheme reference number is included in a relevant return, we should review the DOTAS disclosure and consider whether it covers any of the information required for a reasonable disclosure.

For example, it may identify the relevant arrangement under which the loan or quasi loan was made. It may also give enough information for HMRC to identify that income tax was due on the loan or quasi loan as employment or trading income.

It is less likely to identify the loan and person to whom it was made but it may do and we should consider each DOTAS disclosure with the full information in relevant returns in order to form our view on whether a reasonable disclosure has been made.”

The evidence filed on behalf of HMRC by Felix Bracher also indicated that if a DOTAS number had been provided, the contents of the relevant AAG form would be considered by HMRC for the purposes of making a decision on reasonable disclosure.

We do not consider that this alters our conclusions above. HMRC internal guidance and practice cannot determine the correct statutory interpretation of s. 20(5). While HMRC may, as a matter of practice, have regard to the AAGs filed in relation to particular DOTAS schemes where those schemes are referred to on a tax return, the effect of our conclusions above is that it is not required to do so under s. 20(5), and a decision rejecting repayment on the basis of failure to make reasonable disclosure cannot be impugned on the basis that relevant information was or may have been provided in documents other than tax returns.